FCIB Global: Reshoring Still a Concept in Eye of Beholder

Bringing formerly outsourced jobs, especially manufacturing ones, back to the United States continued to be a hot topic this week at FCIB’s 25th Annual Global Credit Conference. While it is clear that outsourcing of jobs is no longer considered as much of a cost no-brainer as several years ago, nothing resembling a consensus on the matter has been established.

Some, like Euler Hermes Economist Dan North, proclaimed during his Global keynote speech that manufacturing reshoring is a real trend. Reasons for this include the US’s emergence as more of an energy power from its natural case holdings (Re: the cost of energy in and near America continues to decline), closer proximity to its destination markets of choice, easier quality control measures and some erosion of massive labor cost advantages formerly flouted by China and India, among others.

However, there are many success stories of outsourcing or, similarly, use of shared service centers for some credit functions. Hitachi Data Systems Corp. is an example of shared services working brilliantly, with demonstrated strong performance coming out of places like Poland. In addition, some believe mass reshoring still is more theoretical than the industry standard.  “I’ve heard a lot about reshoring, but I haven’t met anyone who has actually done it,” said Cynthia Wieme, CCE, ICCE, MICM, of Norgren Inc.  Also, with the recent Obama Administration pushback against tax inversion strategies, it stands to reason that the taxation status related to some offshoring operations could also be further considered by the federal government.

Even North, who views the re-shoring trend as one that is gaining, said there will be challenges for US producers, even if energy costs remain highly favorable. One blinding reason is, like Japan, a majority of the working population fits into an older demographic that is much closer to retirement than their prime productivity years. 

“We’ve got an age problem in the United States,” North said. “We don’t have enough skilled employment to fill the labor market participation gaps.” He added that the US likely will need an improved program to encourage legal immigration of skilled workers from around the world.

- Brian Shappell, CBA, CICP, NACM staff writer

1 comment:

  1. The primary objective for offshoring was cost savings but as many as 60% of companies made the decision to offshore based on rudimentary cost models or miscalculations, never taking into consideration the total cost of
    ownership (TCO) including all of the hidden costs and risks of offshoring.

    They ignored 20% or more of the total cost of the offshored products.

    Current research shows many companies can reshore about 25% of what they have offshored and improve their profitability simply by using TCO (total cost) instead of price to make their decision.

    25% is equal to 1 million manufacturing jobs!

    Companies are reshoring because they are finding that selecting locations near customers gives them better flexibility to respond to customers’ changing needs, eliminates higher shipping expense, minimizes supply chain disruptions and eliminates the larger production runs and inventories associated with long distance offshoring.

    Companies are investing and reshoring because it makes good economic sense to do so.

    Companies are becoming more sophisticated in how they approach offshoring initiatives. More companies are using Total Cost analysis to decide what to offshore and reshore.

    In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the not-for-profit Reshoring Initiative’s free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring. or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

    Here is the latest data on reshoring U.S. manufacturing from the Reshoring Initiative. http://www.ReshoreNow.org

    Since 2003, new offshoring is DOWN by 70% to 80% and new reshoring is UP by 1500%.

    The most important accomplishment has been the net-loss of 100,000+ manufacturing jobs each year has ended.

    New reshoring is now balancing new offshoring at about 40,000 manufacturing jobs/year, resulting in the first neutral year of job loss/gain in the last 20.

    Reshoring yielded:
    - About 120,000+ manufacturing jobs
    - 20% of manufacturing job growth since the Jan. 2010 low
    - 240,000 total jobs including the manufacturing multiplier effect

    I also recommend reading “ReMaking America” the AAM’s new book on the wealth and growth opportunities of manufacturing in the U.S. Harry Moser, founder of The Reshoring Initiative wrote an excellent chapter on Reshoring. http://www.americanmanufacturing.org/remake-america/